South Florida Lenders and Homeowners Fight Coronavirus Reality

As businesses close their doors in South Florida and unemployment skyrockets to record highs, landlords face a difficult dilemma: How to offer rent deferrals to tenants and at the same time pay off their mortgages ?

Landlord Shane Neman said he offered deferrals to commercial tenants, but says two of his lenders have yet to give him definitive directions about whether he can modify his loans and delay his mortgage payments.

“Most mortgages are due on the first of the month. If lenders don’t provide clarity, homeowners are going to be afraid of defaulting and start hiring lawyers, ”said Neman, founder of Miami-based Neman Ventures, which owns more than two dozen companies in large scale. properties across the United States, including an industrial cold storage facility in the Allapattah neighborhood of Miami.

Raj Singh, CEO of BankUnited

Raj Singh, CEO of BankUnited

Neman’s reality is one between homeowners and lenders in South Florida as the world battles the romance Coronavirus pandemic. President Trump is on the cusp of signing a $ 2 trillion stimulus package with provisions to help small businesses, which could provide some relief to homeowners. And other federal programs can help as well. But concerns are growing that banks will withdraw lines of credit from non-bank lenders and that deals as a whole will stop until the end of the pandemic.

“It’s just a big shock to the system. The whole economy is going to recover somehow,” said Raj Singh, CEO of Miami Lakes-based BankUnited, the largest bank of South Florida in terms of assets.

The postponement debate

Singh has said his bank will allow borrowers to defer payments, but he’s also waiting to see what government help is available through Congress’ Recovery plan that the House of Representatives adopted on Friday.

“Right now it’s a very cloudy place, but we know a lot of help is coming,” Singh told The Real Deal on Thursday.

Eddy Arriola, chief executive officer of Miami-based Apollo Bank, said he was giving borrowers 90-day deferrals and working with them on loan repayments.

Chairman and CEO of Apollo Bank, Eddy Arriola

Chairman and CEO of Apollo Bank, Eddy Arriola

Lenders like Arriola have said the crisis is affecting many businesses outside of the hotel and restaurant industries, potentially having a wider impact on the real estate market.

“We have a lot [borrowers] who have doctors’ offices and non-emergency care centers, and they are hit very hard, ”said Arriola, adding that many of these borrowers own their offices.

For lenders, another problem is that real estate transactions are stopping, as businesses have closed and there are too many unknowns about the impacts of the virus.

“There are so many uncertainties around property underwriting, cash flow, pricing and capital market liquidity that it will be very difficult to close deals,” said Paul Fiorilla, research director at Yardi Matrix, a sales agent based in Scottsdale, Arizona. real estate research and data firm.

The $ 2 trillion stimulus bill, however, could provide relief to lenders and homeowners.

The bill provides $ 377 billion to help small businesses through SBA loans, according to the New York Times. Borrowers would not have to repay the portions that were spent to pay employees, a mortgage, rent or utilities. The banks making the loans would then be reimbursed by the Treasury Department, the Times reported.

Seizures avoided

Ken Thomas, a longtime independent banking analyst from South Florida, said the last thing banks want to do now is go through the foreclosure process. Instead, banks will consider modifying loans rather than classifying them as distressed.

“The banks are going to be very careful not to cancel the loan, it’s the last thing they want,” Thomas said. “It ruins things for years.”

JC de Ona, Southeast Florida Division President for Conway, based in Arkansas Centenary Bank, said his bank was offering 90-day deferrals and was working to restructure loans.

“We don’t even think about foreclosures,” de Ona said.

Brett Forman, who heads operations in the eastern United States for Trez Capital, a Vancouver-based non-bank lender with $ 3.8 billion in assets under management, said in some cases his business was asking for more. collateral on loans or was looking to get paid early on some of his construction loans.

“We believe in our relationships,” Forman said. “We are firm, but fair. “

Forms of relief

In addition to Congress, banks can also rely on the Federal Reserve. The Fed has indicated that it will continue to pump liquidity in banks, after announcing two weeks ago that it would buy nearly $ 700 billion in securities, including $ 200 billion in mortgage-backed securities. The Fed has also signaled that it will not put a limit on this program.

Other federal programs are also looking to give homeowners a break. The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, announced this week that the two mortgage insurers will give multi-family homeowners a Pause on their loans provided they do not evict tenants who are short of money because of the pandemic. The US Department of Housing and Urban Development also said it would grant a 60-day moratorium on evictions for owners of single-family homes with FHA-insured mortgages.

So far, South Florida banks have yet to report their first quarter profits to regulators or investors. The first reports give an overview of the banks’ exposure. OceanFirst Financial, a $ 10.2 billion asset bank headquartered in Toms River, New Jersey, said it had approximately $ 1.6 billion in exposure to loans to entities affected by the coronavirus, according to a regulatory filing that was first reported in the American Banker industry publication.

Non-banking risks are increasing

But worries are growing, all the more about non-bank lenders than banks, since banks have the option of borrowing from the Federal Reserve’s discount window.

Rating agency Fitch has warned that non-bank lenders, in particular, could be in trouble if mortgage forbearance becomes widespread. In New York, the Cuomo administration has regulations introduced force banks to give homeowners mortgage relief. This has yet to be enacted in Florida, but it could put additional pressure on non-bank lenders.

“The pressure on the non-bank mortgage sector is particularly acute at the moment,” the rating agency said in a press release, announcing that it had put seven non-bank lenders on negative watch.

Apollo Bank’s Arriola added, “With every downturn it’s the guys who need to be affected. Some non-bank lenders are going to have real problems. “

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